“Manager must become familiar with other

markets, cultures, and customs”

-One world One market-

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 chapter one

The Rapid Change of

International Business

McGraw-Hill/Irwin
International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
• Appreciate the dramatic internationalization of markets

• Understand the various names given to firms that have

operations in more than one country

• Understand the five kinds of drivers, all based on change,

that are leading international firms to globalize

• Comprehend why international business differs from

domestic business

• Describe the three environments—domestic, foreign, and

international--in which an international firm operates
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International Business Terminology

• International business
• Foreign business
• Multidomestic company (MDC)
• Global company (GC)
• International company (IC)

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International Business Terminology,
cont’d.

• International Business
– A business whose activities are carried out
across national boarders
• Foreign Business
– The operations of a company outside its
home or domestic market
• Multidomestic Company
– An organization with multicountry affiliates
• Each formulates its own business
strategy on perceived market differences
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International Business Terminology,
cont’d.

• Global Company
– an organization that attempts to standardize
and integrate operations worldwide in most of
all functional areas

• International Company
A global or multidomestic company

• Transnational
Combines the characteristics of global and multinational
firms. 1-7
 International Business:
Operations and Influences

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Copyright © 2011 Pearson Education
History of International Business

• Early traders
– Well before the time of Christ, Phoenician
and Greek merchants
– China stimulated the emergence of an
internationally integrated trading system
• “all roads lead to China”
• 17th Century mercantilism/colonialism
– British East India Company
– Dutch East India Company
– Portugal and France
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 Globalization

• Globalization
– Coined by Theodore Levitt
• “as if the entire world (or major regions of
it) were a single entity; [such an
organization] sells the same things in the
same way everywhere”
• Economic Globalization
– International integration of goods,
technology, information, labor, and capital
– Process of making this integration happen

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 Globalization Forces

• Political forces
– Reduction of barriers to trade and foreign
investment by governments
– Privatization of former communist nations

• Technological forces
– Advances in computers and communications
technology
– Internet and network computing

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 Globalization Forces, cont’d.

• Market forces
– Globalizing companies become global customers

• Cost forces
– Goal for economies of scale to reduce unit costs

• Competitive forces
– Increase in intensity due to explosive growth in
international business

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 Explosive Growth

• Foreign Direct Investment and Exporting

– FDI - Direct investment in equipment,
structures, and organizations in a foreign
country
• level sufficient to obtain significant
management control (Table 1.2)
– Exporting – transportation of any domestic
good/service to a destination outside a
country or region

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 Explosive Growth

• Number of International Companies

– UNCTAD - United Nations agency in charge
of all matters relating to FDI and
international corporations.
• 1995 – 45,000 parent companies with
280,000 foreign affiliates ($7 trillion in
sales)
• 2004 – 70,000 parent companies with
690,000 foreign affiliates ($19 trillion in
sales)
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 Globalization Debate And You

• World Trade Organization (1999,

Seattle)
– Extensive public protests about globalization and the
liberalization of international trade

• Debate –
– Waged by diametrically opposed groups with extremely
different views on consequences of globalization
– Dramatic reductions in worldwide poverty are contrasted with
anecdotal stories of people losing their livelihoods under the
growing power of multinationals

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 What’s Wrong with Globalization

• Threats to national sovereignty

• Economic growth and environmental stress
• Growing income inequality and personal stress
• Offshoring – the transferring of production
abroad – is controversial in terms of who
benefits when costs are reduced and whether
the process exchanges good jobs for bad ones.

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Copyright © 2011 Pearson Education
 Environments of International
Business
• Environment
– All the forces influencing the life and
development of the firm
• Forces
– External Forces (Uncontrollable) – Forces
over which management has no direct
control
– Internal Forces (Controllable) – Forces that
management can use to adapt to external
forces

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 External Forces

• Competitive
– Kind, number, location
• Distributive
– For distributing goods and services
• Economic
– GNP, unit labor cost, personal consumption
expenditure
• Socioeconomic
– Characteristics of human population
• Financial
– Interest rates, inflation rates, taxation

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 External Forces, cont’d.

• Legal
– Laws governing how international firms must operate
• Physical
– Topography, climate, and natural resources
• Political
– Forms of government, and international organizations
• Sociocultural
– Attitudes, beliefs, and opinions
• Labor
– Skills, attitudes of labor
• Technological
– Equipment and skills that affect how resources are converted to
products
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 Internal Environmental Forces

• Factors of Production
– Capital, raw materials, and people

• Activities of the organization

– Personnel, finance, production, and marketing

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 Why Is International Business
Different?
• Domestic Environment
– All the uncontrollable forces in the home country
that surround and influence the firm’s life and
development
• Foreign Environment
– All the uncontrollable forces originating outside the
home country that surround and influence the firm
• different values
• difficult to assess
• interrelated

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 Why Is International Business
Different? cont’d.

• International Environment
– Interaction between domestic and foreign
environmental forces or between sets of
foreign environmental forces
– Increased complexity for decision-making

• Decision making more complex

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International Business Model

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 Quote of the day

“All Managers need to have a basic

knowledge of international business to be
able to meet the challenge of global
competition.”

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